June 16, 2011
On June 15, 2011, the Seventh Circuit held that defendants had not appeared in a lawsuit and, therefore, were entitled to one full opportunity to challenge the district court's entry of default judgment for lack of personal jurisdiction in
Philos Technologies, Inc. v. Philos & D, Inc., ___ F.3d ___ (7th Cir. 2011), Case No. 10-2854. This decision will help every defendant that believes it can successfully defend a suit based on personal jurisdiction.
less..
The plaintiff sued multiple defendants (a corporation and two individuals) in federal court based on diversity of citizenship. The defendants were successfully served, but never formally appeared in the case. Rather, the two individuals sent an informal
pro se letter to the district court in which they said that they had no involvement with the plaintiff and asked that the case be dismissed. The defendants took no other action.
Eventually, the plaintiff moved for default judgment, which was granted. The district court then had a hearing on damages and entered a final judgment for the plaintiff.
Nearly a year after the district court entered final judgment, counsel for the defendants appeared and filed a motion to vacate the default judgment under
Rule 60(b)(4). The district court denied the defendants' motion without addressing its merits and they appealed.
On appeal, the Court confirmed that it would use an abuse of discretion standard of review in this situation, but that the denial of a Rule 60(b)(4) motion when the district court lacks jurisdiction is
per se unreasonable.
A court has no discretion to deny a Rule 60(b)(4) motion to vacate a judgment entered against a defendant over whom the court lacks personal jurisdiction, regardless of the specific reason such jurisdiction is lacking.
The Court then turned to the merits of the appeal. It described how a defendant could assert a lack of personal jurisdiction in either the original case or in a collateral attack on a default judgment - and the costs and benefits of each of these choices. Thus, the fact that almost a year passed between entry of the judgment and the Rule 60(b)(4) motion was irrelevant; the true question was whether the defendants had previously appeared in the action, which would have required them to challenge personal jurisdiction at that time.
The Court concluded that the individual defendants' letter did not constitute an appearance. While it did request that the district court dismiss the case, the Court read it generously in favor of the
pro se litigants.
Although the individual defendants did request the dismissal of the action in their letter, and although "a motion to dismiss is normally considered to constitute an appearance," a more sound reading of the defendants' letter counsels against construing their letter as such a motion. Such a "motion," after all, would have been denied as plainly deficient on its face. The letter was nothing more than an informal but respectful attempt to explain why Jae-Hee Park and Don-Hee Park would not appear in any judicial proceedings conducted in Illinois. Nothing about that letter indicated the defendants' intent to defend the suit against them or any intent to submit to the district court's jurisdiction.
Therefore, the Court held that the district court erred by denying the defendants' motion without addressing the merits.
The Court's discussion of the ways that a defendant can challenge personal jurisdiction is well worth reading as a primer on this issue. However, it is the Court's attitude toward the defendants that could have a lasting effect. In this case, the Court was clearly inclined to give the defendants "one full opportunity" to argue the personal jurisdiction issue. It is this portion of the Court's opinion that is likely to be quoted most extensively in the future.
Lessons:
- Personal jurisdiction can either be challenged directly or collaterally.
- There is no time limit on bringing a challenge to a judgment based on personal jurisdiction.
- The Seventh Circuit will liberally allow defendants one full opportunity to litigate their personal jurisdiction arguments.
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